Household energy bills are projected to rise by a lower-than-first-feared 12% in July, according to the latest forecasts from Cornwall Insight. The energy consultancy has revised its prediction for Ofgem's price cap for the period from July to September, now estimating it will stand at £1,837 for a typical dual fuel household. This represents an increase of £196 annually compared to the current cap in effect from April to June.
Revised Forecasts Amid Market Volatility
In early March, Cornwall Insight had issued a warning that annual household energy bills could surge by £332 to £1,973 from July when the next cap is implemented. The updated forecast signals some easing back in wholesale energy costs following the initial painful price spikes that occurred at the start of the Iran war on February 28. However, wholesale markets remain highly volatile, and Britons will still face steep rises in their gas and electricity bills as the fallout from the Middle East conflict continues to drive wholesale energy and oil prices upward.
Factors Influencing the Price Cap
Cornwall Insight recently cautioned that a rise in the cap in July is effectively unavoidable, with rocketing wholesale prices already locked into the calculation and little chance they will fall below pre-war levels in the coming weeks. Ofgem is scheduled to announce the next price cap level by May 27. The current cap, reduced by 7% to £1,641 between April and June, was driven by the Government's promise to cut bills by an average of £150 through the removal of green subsidies.
Government Response and Support Measures
The prospect of a significant jump in gas and electricity costs when the cap is next updated in July has prompted the Government to indicate it will look at further targeted support as part of contingency planning efforts. Earlier this week, the Government also extended upcoming electricity bill support to 10,000 firms, offering some respite to companies that are not covered by the household energy price cap.
Impact of the Iran War on Energy Markets
Wholesale energy costs are not expected to return to pre-war levels until the Strait of Hormuz, through which a fifth of the world's oil and seaborn gas is carried, is reopened. The blockage and disruption to supply, combined with attacks and stoppages at energy infrastructure across the Middle East, have sent gas prices soaring and the cost of crude surging as high as 120 US dollars a barrel at one stage since the conflict began. This ongoing volatility underscores the challenges facing consumers and policymakers in managing energy affordability amid geopolitical tensions.
